UK: A Wake Up Call For The Oil Industry - Time To Review Your Competition Compliance

The first ever convictions in the UK for a cartel offence
were handed down yesterday to three UK executives in the oil
services sector. The three received terms of between two and a
half to three years and were also disqualified from acting as
company directors for periods of between five and seven
years.

All three pleaded guilty to dishonestly participating in a
cartel to allocate markets and customers, restrict supplies,
fix prices and rig bids for the supply of marine hose and
ancillary equipment in the UK. Marine hose is used by the oil
and defence industries for transporting oil between tankers and
storage facilities. The cartel was global in its scope and
involved all the major manufacturers of marine hose worldwide -
it was alleged to have affected contracts worth at least
£122 million between 1999 and 2007. Bryan Allison and
David Brammar were the Managing Director and Sales Director of
Dunlop Oil and Marine Limited, a manufacturer of marine hose
based in Grimsby. Peter Whittle traded as an independent
consultant but in practice was employed full-time by the
parties to the cartel to co-ordinate their activities around
the world.

The story began in May 2007 when officers of the OFT
executed search warrants at Dunlop's offices and
Whittle's home and seized "extensive and
compelling evidence" of the cartel arrangements. At the
same time, the three men were arrested in Houston, Texas, where
they were attending the OTC trade fair - they had used the
opportunity to hold a cartel meeting which had been covertly
recorded by the US authorities. In all, a total of 8 people
from the UK, France, Italy and Japan were arrested over two
days of raids across the USA and Europe, following a combined
investigation by the UK's Office of Fair Trading (OFT),
the European Commission and the US Department of Justice
(DOJ).

Within months of their arrest the "OTC Three" had
been charged and pleaded guilty under a plea bargain
arrangement - they were each sentenced to between 20 and 30
months. Under the terms of the plea bargain Whittle, Brammar
and Allison were allowed to return to the UK in December 2007
where they were promptly arrested at Heathrow Airport by the
Metropolitan Police. They were then charged under the
UK's cartel offence - used for the first time since its
introduction in the Enterprise Act 2002. Under their US plea
bargain, time spent in a British prison will count towards
their US sentences though if they do not serve the full term of
their US sentences in the UK they will have to serve any
remainder in the US.

This is unlikely to be the end of this particular story, nor
is it likely to be the end of cartel investigations in the oil
sector. Like the construction sector, where the OFT has
recently announced a major anti-cartel investigation, the oil
industry supply chain is quite concentrated in some areas and
supplies some high value but relatively standardised items
where prices are fairly transparent - just the kind of
conditions where economists tell us that cartel activity can
flourish.

In addition to the reputational damage, Dunlop Oil and
Marine and any other companies involved now face significant
fines (up to 10% of worldwide turnover under EU law) for their
actions and very probably also third party action for damages.
While damages actions are still relatively infrequent in the
UK, this cartel operated in the US where there is a long
history of such actions and it seems likely that affected oil
companies and possibly also the US Navy may sue. As for Europe,
damages actions are already on the increase as a trickle of
cases such as those involving replica football strips and
airline tickets proves that recovery is possible. In addition,
the EU has recently published a paper proposing changes to make
such actions easier, although the Commission is currently not
supporting a move towards the treble damages available in some
US cases.

Cartel investigations are usually prompted by disclosures
made by a whistleblower from among the cartel members keen to
benefit from the so-called "leniency policies" which
many competition authorities operate to encourage
whistleblowing. If they are first through the door of the
authorities, companies can gain immunity from fines for
themselves and immunity from prosecution for the executives
involved, although not from other consequences such as the
unenforceability of anti-competitive agreements and third party
damages actions. This creates a strong incentive to be the
first to blow the whistle, as those who then hold their hands
up will likely receive only limited immunity. In addition, the
OFT has recently added to its armoury a scheme to award
informants who are not themselves part of the cartel with up to
£100,000 for information.

In the face of these risks all businesses should:

Make sure their competition compliance policy and
procedures are up to date;

Even more importantly, to reduce the risk of rogue
employees choosing to ignore the policy (as happened last
year with British Airways and its attempt to fix fuel
surcharges) give regular training to ensure that staff take
the message fully on board;

Ensure their staff know what to do if the authorities
arrive to carry out a dawn raid - EON was recently fined 38
million euros for breaching an official Commission seal fixed
during a dawn raid in May 2006 to secure documents.

This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register
for Law-Now, please go to
www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport
to give professional or legal advice. All Law-Now information
relates to circumstances prevailing at the date of its original
publication and may not have been updated to reflect subsequent
developments.

The original publication date for this article was
12/06/2008.

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